Monday, December 6, 2010

Robert Samuelson's Comments On Debt Panel Besmirch His Name Yet Again

In today's Washington Post in "What the Debt Panel Missed," Robert Samuelson embarrasses all the high quality economists who have or have shared his last name with more inane remarks. So, according to him, the "debt panel" missed defining what is our national interest in various programs, saying that just arguing to "give our children and grandchildren a better life" does not cut it. For him, our national interest involves no cuts in defense spending, as some were suggested by the panel, but "It's not in the national interest to subsidize Americans, through Social Security and Medicare for the last 20 to 25 years of their lives because healthier people and the huge costs make the budget unmanageable."

Regarding defense (and intelligence) spending, it strikes me there are many candidates for cutting or even eliminating. Do we really need 16 intelligence agencies? Given that there is the CIA on the one hand and intel agencies for the Army, Navy, and Air Force (this latter reputedly run by total maniacs) on the other, what on earth do we need the DIA for? Eliminate some of them, heck, a bunch of them. By many accounts the most capable of the lot is State Department I&R, which spends less than practically any of the others.

Then we have all the spending on privatized defense for the successor to Blackwell and its cronies. Instead of using military personnel for guarding diplomats and many other things, we pay about five times more per person for these privatized services that have had a simply awful track record in Iraq and elsewhere.

As for Social Security and Medicare, given that the vast majority of people live to use these, how is providing them not in the national interest? OK, medical care costs are rising, but the deficit commission offered nothing on this, and unfortunately the recent health care reform only nibbled at the problem. Social Security is not in financial trouble, and raising retirement ages, what Samuelson and the commission both support, does nothing about the near term deficit problem, while putting manual workers at risk in the future. And, life expectancy of poor white women in the US has actually been declining recently, so some of his assumptions about the future are not justified. In any case, as argued by Dean Baker and others, if a financial problem for Social Security arises, it can easily be fixed in a decade or so with minor tweaking. Doing anything now is stupid.

I do agree with Samuelson on one thing. The proposal to raise tax revenues by eliminating a variety of tax loopholes and deductions or "tax expenditures" is a worthy proposal. I have long supported tax simplification and did so back in 1986 when we had our last round of it. Bush, Jr. should have imitated Reagan and focused on that in his second term rather than running around the country for 60 days bashing Social Security. This might be passable and is fully deserving of support. However, the failure of the commission to get 14 votes means the pieces of its proposals will be chopped up and fed separately to the Congress, with the likelihood that very little of it will get passed in the current vituperous environment.

39 comments:

It is my understanding that the general US budget expenditures have been using social security funds to provide for other programs.

And when a country is broke (having used up the savings of others) then something has to give.

I put forward some ideas to get America and other nations out of trouble. (I'm sure many other people have done the same):

If it is true that in America " the top 1% captured two thirds of income growth.” [Between 2002 and 2007] and that 10,000 people get 30% of the income then how about taxing the rich individuals much more?

Reagan shifted the tax burden from rich people and onto corporations instead. Undo Reagan. Do it across all nations.

Put a tax on international speculative flows and any other non-productive forms of 'portfolio management'.

I could go on and provide a much bigger list of solutions but, heck, what would be the point. A big centralised government peopled by ultra wealthy individuals isn't going to implement programs that cut their own financial throats. It seems that this won't happen until a widely and intensely distressed populace put the knife directly to those privileged physical necks.

I would add that (IMHO) passive and/or massive dependence on dividends, bank interest rates, social security or any form of income divorced from productive effort needs to be minimised.

The concept of reward for effort is not a bad one at all. Is it possible to find a person on this planet that is so brainy and capable that he/she is entitled to super-normal incomes in any form? The range of human IQ is nowhere near as extreme as the range of income rewards.

Let the IQ range be reflected in the range of incomes wage rewards.It seems appropriate also to allow social security recipients the space to build their homes and grow their gardens and acquire the skills of self reliance and genuine ecological sustainability.

"Of course, but Social Security is for retired people. Are we to demand that old retired people be productive? "

Well it sounds awful doesn't it. To make any demands on a generic group of people. I'm afraid of the inadequacy of a big centralised government to implement any programs that group people together blindly.

Social security in many countries is provided for people of many ages and abilities. Not just 'old' ones.

It seems fair to ask for social contributions from those individuals with the physical strength and/or other capabilities. From those according to their ability. To those according to their need. Hmmm, where did I read that? ;-)

"It is my understanding that the general US budget expenditures have been using social security funds to provide for other programs. "

Only under a self-serving twisted understanding of what Trust Fund assets really are. There is a reason you "understand" that Brenda, it is because some unusually skilled liars have been selling a particular set of narratives since Fall 1983 with tremendous success.

Examine the following proposition: I give money to a governmental entity or private corporation. They spend it on investments (or really anything) of their own choice. In return they give me a promise to repay the money with a set rate of interest.

In what context OUTSIDE of the U.S. Social Security system is that defined as "using Social Security funds to provide for other programs" rather than "buying a bond"?

Enemies of U.S. Social Security have gone to endless lengths to push bogus narratives that would have the Special Treasuries in the Social Security Trust Fund have somehow a junior position to the regular Treasuries that have for decades been the choice for flight to safety. Well nothing under the law supports that, in fact there is a good argument that the Special Treasuries in the Trust Funds are EVEN MORE SECURE than those held by the Public, including the Chinese Central Banks, and that that FACT is proven by current practice which has the DI Trust Fund (one of two that make up what we know as THE Social Security Trust Fund) has been cashing in its principal for cash since last year. No one noticed because it is a non-event. Over the 75 year history of Social Security Trust Fund balances have gone up and down, meaning that the Treasury has honored its obligations to redeem Special Treasuries just like any other (except that they are actually redeemable in advance of face maturities and are not exposed to market fluctuations and so ARE THAT MUCH MORE SAFE) without any question.

Except from the liars at AEI, Cato, Heritage, and the various organizations affiliated/funded by fund of hedge fund billionaire Peter G Peterson.

Brenda I don't blame you for believing this particular Big Lie, because these guys are good. Despicable lying propagandists willing to admit that in the end they are just a bunch of liars and thieves. But like most Mafia Lawyers (the nearest societal cognate) good at what they do.

Social Security has a bond portfolio of $2.6 trillion, or over double that of all combined Chinese government and private entities. And while we don't know the full extent of current Fed holdings of Treasuries it looks like the current round of Quantitative Easing will take their bond portfolio to just under $2 trillion. On the other hand Social Security is currently on track to expand its portfolio to $4.2 trillion by 2024. You have to go through the Looking Glass to believe that the cupboard is bare.

Was it the Red Queen or the White Queen who claimed the ability to believe a dozen impossibilities before breakfast? Well some of the 'economic' 'experts' at AEI could give either one lessons.

There is a variation between the states in terms of payment levels, but the federal government does make provisions for people beyond the elderly. It is not a complete system, but modest payments are made to the physically disabled and the blind, minor children who have lost a parent, and the poor. Now, states are going to probably cut programs and their share of the payments down to the legally required limit, and those payments are always under threat from the right, but they do exist. SSDI and SSI are very important programs for families who have health issues, and you are allowed to "contribute" under those programs according to your ability. The payments change depending on earned income.

If one wishes to work after 62 currently, it is possible to do so as there is no mandatory retirement age. My mother is still working at 68 and my grandfather worked until 79. The difference between the disability pension program and the retirement program is that the former requires medical documentation of disability in order to obtain benefits. I am not certain that the solution to the problem is to require annual physicals of people over 62 each year to determine whether or not they are still have the ability to work to receive full benefits. At some point, people ought to be considered competent to decide whether or not they should continue working without the need of a physician.

Bruce:Social Security funds have been loaned to the Treasury to pay for current expenses.That money is gone today.Hopefully, it was used for productive expenses.The trust fund is merely an accounting mechanism which shows how much money it can draw on the Treasury without an appropriation. The trust fund makes it no easier to pay for Social Securutry than to pay for battleships. It just makes it a bit more convenient, for no appropriation is needed as long as the trust fund has a positivre Fund Balance with the Treasury." I can provide good governmental links to add credibility amd objectivity to the discussion if anyone is interested.I would like for Bruce Webb to do the same, for frankly, I'm getting tired of his unsubstantiated propaganda.Don Levit

Don,You've been trying to peddle that c rap for a while now b oth here and on Angry Bear. If you don't believe Bruce regarding the reality of a recorded series of securities that are described as the Trust Fund, maybe you'll accept the SSA's description:http://www.ssa.gov/oact/ProgData/specialissues.html"Trust funds and types of investmentsThe Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund comprise the Social Security trust funds. Both funds are managed by the Department of the Treasury through their Bureau of Public Debt. Since the beginning of the Social Security program, all securities held by the trust funds have been issued by the Federal Government. There are two general types of such securities:

Special issues—available only to the trust funds Public issues—marketable Treasury bonds available to the public. The trust funds now hold only special issues, but they have held public issues in the past. Special issue types and propertiesThere are two types of special issues: short-term certificates of indebtedness and long-term bonds.

The certificates of indebtedness are issued on a daily basis for the investment of receipts not required to meet current expenditures, and they mature on the next June 30 following the date of issue. Special-issue bonds are normally acquired only when special issues of either type mature on June 30. The bonds have maturities ranging from one to fifteen years."

Who is it that's trying to sell a line of BS, Don? It certainly seems that the government agrees with the description provided by Bruce.

Jack:I am glad you mentioned the 2 types of debt, which is debt held by the public and intragovernmental holdings.Debt held by the public is between 2 distinct entities, like when you buy a Treasury security.Public debt pays interest in cash, so it affects the current budget.Intragovernmental holdings debt is debt owed by the federal government to various trust funds, about half of which are owed to the Social Security and Medicare trust funds. Interest on this debt is not paid in cash, but in additional Treasury securities (debt).Public debt is considered superior to intragovernmental debt by many economists, for debt owed to an outside entity is considered a better grade of debt than debt the government owes to itself. For example, the Treasury owes the Social Security trust fund. Those 2 entities are subsets of the set, the federal government. If your left hand borrowed from your right hand, how quickly would that debt be paid off?In addition, the GAO says the federal government considers debt held by the public to be the strongest federal obligation, level 1; while intragovernmental holdings debt is the weakest federal obligation, level 4.Again,, for those who are interested, I can provide governmental excerpts and links to support my statements.Don Levit

Bruce: "I give money to a governmental entity or private corporation. They spend it on investments (or really anything) of their own choice. In return they give me a promise to repay the money with a set rate of interest. In what context OUTSIDE of the U.S. Social Security system is that defined as "using Social Security funds to provide for other programs" rather than "buying a bond"?

Don Levit"Social Security funds have been loaned to the Treasury to pay for current expenses. That money is gone today. Hopefully, it was used for productive expenses. The trust fund makes it no easier to pay for Social Securutry than to pay for battleships."

I can't see the contradiction in these two statements. Bruce, it makes sense that the government has purchased a bond and has an obligation to pay it back. Also, as Don states, it is also true that the funds can be 'lent' by the government to pay for other governmental expenses.

What is questionable is this statement by Don: "That money is gone today."

The US Government has proven over and over that there simply is no shortage of money whenever there is a political will to bring money into being. The TARP and other bailouts came to over 70 years of Social Security provisions for each and every American, I understand.

Money can be created out of nothing. So the refusal to keep social security payments at their existing real value has all the earmarks of a political decision.

Perhaps it's an attempt to try to address the frail fiscal position of the federal government by targetting the poor rather than the 10,000 individuals who take in 30% of the nation's income?

"Public debt is considered superior to intragovernmental debt by many economists, for debt owed to an outside entity is considered a better grade of debt than debt the government owes to itself." Don Levit

Geez Don is that the best that you can do? "I can provide governmental excerpts and links to support my statements." I'm sure that you can find a host of opinions regarding what debts to pay first, second and last. You are conveniently over looking the legal obligation aspect of those debts as in, it is a legal obligation of the Treasury to account for the Trust Fund amounts and to pay interest on that amount and make funds available to beneficiaries when they are due. Legal obligation Don. Does the concept ring a bell? If Treasury can prioritize its debt obligations then your T-Bills and mine and anyone else, including China, Japan, Korea etc, is at the mercy and whim of those decision makers. You've been drinking too much of that Peterson Foundation Kool-Aid. When will you be donating your third tier holding back to your government in a show of faith?

Suffern AC: "the federal government does make provisions for people beyond the elderly. It is not a complete system, but modest payments are made to the physically disabled and the blind, minor children who have lost a parent, and the poor...

"the poor" often being those unemployed or underemployed individuals that are collateral damage to the 'efficiency' drive of modern industry.

I'd like to read a discussion on the future of balanced federal budgets under conditions of diminishing hours of paid work and the ever-increasing numbers in the ranks of the 'working poor'.

The logical remedy to financial costs of social security under such conditions is to increase the hours of work, increase wages (so that they need not be topped up with social security payments) and to make available the public provision of humble but acceptable homes with land for gardens and sheds (a refuge for the poor from inflation).

Who will pay for more jobs and higher wages? It looks like the thriving plutocracy that just received trillions in bailout money are the only entities left with the resources to do so. [ No regulation of funds, no supervision of funds, no discipline. A prime cut of welfare if ever there was!]

2009 – October 8th. What is happening is that the hundreds of billions of dollars in TARP money given to the large banks and the trillions of dollars that have been added to the Federal Reserve’s balance sheet have been funneled into the stock market, producing another bubble, and into the acquisition of smaller banks by banks "too large to fail." The result is more financial concentration."

Brenda:You wrote that money can be created out of nothing.Wow, I thought only God could create something out of nothing.Even Jesus needed a few loaves and fishes to create enough to feed thousands.People say we have a fiat currency, which I admit, I do not understand the nuances of.They seem to claim as you do, that we can continue issuing additional debt, without worrying much about repercussions.But America is not an island unto itself.Other countries, not in a fiat currency, have guidelines they must live within, including the their total debts.Seems to me hyperinflation is the inevitable result of an improper amount of debt.Bruce claims we have been paying Social Security benefits for over 70 years, which is correct. He also seems to believe we can continue on this same course, ad infinitum.In 10 years, a government agency, I believe it is the CbO or GAO, estimates that Medicaid, Medicare, Social Security, and interest on the debt will consume the entire budget.That seems pretty scary, don't you think?Don Levit

"In 10 years, a government agency, I believe it is the CbO or GAO, estimates that Medicaid, Medicare, Social Security, and interest on the debt will consume the entire budget.Don the Obfuscator

Nice try Don. I admire your resilience, but I'm concerned about your inclination to grossly distort information. You've lumped together three entirely separate budget categories. You fail to point out that Social Security, which is separately funded, is and will be in the black for the next 25 years by all estimates provided by the Trustee's Report. That is a very long term projection and even if true can be fixed by minor adjustments to the FICA contribution rates in ten or fifteen years from now. And even if nothing is done the worst case scenario has beneficiaries collecting about 75% which will be a bigger benefit than is now available. On top of which who can tell what improvements may occur in our economy between now and then. We might even get a legislature and President that may finally ask and require the very wealthy to begin paying their fair share of government expenses. We might even see a more equitable distribution of earnings and unemployment may recede to a more reasonable level. How knows?

What we do know is that if people like yourself continue to accept the distortions that you make so readily available to others our government will feel no obligation to deal with our economic issues in an equitable fashion. This may not be until "...the rich and the government stop bribing treacherous pens and tongues to deceive them[the people]..."

Jack:The federal government does consider public debt to be superior to Intragovernmental Holdings debt.Your lumping all Treasury debt into one pot, as the same obligation, is incorrect, at least according to the GAO.In a paper entitled "Federal Debt, Answers to Frequently Asked Questions, An Update:"Page 66 "Explicit Liabilities (strongest level of federal government committment, level 1) Publicly Held Debt.""Exposures Implied by current policies or the public's expectations about the role of Government - level 4, the weakest level of federal government commitment - "Future Social Security benefit payments, Future Medicare Part A benefit payments, Future Medicare Part B benefit poayments, Future Medicare Part D benefit payments, .http://www.gao.gov/new.items/d04485sp.pdf.From a paper entitled "Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Information,SFFAS7," published by the FASAB, the accounting advisor for the federal government:Page 109 "Taxes are levied through the exercise of the power of the Government to compel payment. The relatioinship between the tax paid and the value received is too indirect and disproportionate to relate the revenue that is received from any identifiable taxpayer to the cost that is incurred for providing the identifiable taxpayer with benefits. This is especially the case when the benefits are of a collective or public in nature where the benefits are designed to redistribute income from one group of people to another. Therefore, tax revenue is nonexchange revenue."http://www.fasab.gov/pdffiles/sffas-7.pdf.This is not a debate between Don and Jack.This is a discussion between Jack's opinions and the statements of the GAO and FASAB.Who is more credible?Don Levit

It's not a debate between any two or three or more entities. It is a matter of legislation on the books. The opinions expressed by any office of the government are only good for the length of that governments term in office. Such opinions are intended to creaqte an impression that allows for the revision of legislatively mandated actions. Regarding the objectivity of such opinions one should be aware of the revolving door nature of such individuals who publish reports containing such opinions. That door swings persistently between positions in t=such government agencies and the financial industry. Peter Orzag is but one recent example and a review of the resumes of virtually every senior executive in a government budget or accounting office would further elucidate the point.

The one thing that is objective is the letter of the law, That seems to be a letter that you would rather ignore. Every aspect of the Social Security system is described by law from FICA receiptsto the Trust Fund purpose to the use of and repayment of Trust Fund funds to the method for calculating benefits. A matter of law. Not some functionary's opinion written with his eye to his personal professional future,

Jack:You are correct about one particular person's opinion.But many of my excerpts have been repeated over time, over many governmental agencies.Why don't you cite which particular provision of the law differs with one of my excerpts?Do you think the excerpts have insufficient validity for you to reply to?Do you think you're smarter than the various agencies I have cited?When your back is against the wall, you resort to personal attacks on me or the various governmental agencies.Until you learn how to constructively argue, neither you nor I will learn anything new.Don Levit

"Why don't you cite which particular provision of the law differs with one of my excerpts?"

I've already done that and you had chosen to ignore it and to continue to put forth opinion pieces as though they had some weight in the discussion. If I've been harsh in my characterization of the content of your comments it is because I have serious concerns about your intention in being so persistently misleading in those comments.

Don Levit: "In 10 years, a government agency, I believe it is the CbO or GAO, estimates that Medicaid, Medicare, Social Security, and interest on the debt will consume the entire budget.That seems pretty scary, don't you think?

It sounds very scary and the statement appears to have the intent of frightening people into submission. Give up the funds you've put aside for a rainy day, you say. To provide for whom exactly?

Another $1.4 trillion govt commitment (government as lender) represents "A significant expansion of the government's traditional overnight lending to banks, including extending terms to as many as 90 days and allowing borrowing by other financial institutions. "

Something and someone has to give. It's certainly not the big financial institutions nor their investors.

I have a friend living in the comfortable certainty that comes with a million dollars a year in income. He is a major bank investor and is terribly grateful for the government's bailout, depositi guarantee and ongoing unquestioned support of his (and his ilk's) household finances.

A major difference between welfare for the rich and welfare for the poor is that there are far fewer strings attached to the former.

The unanswered question posed to Mr Levit:

BR: Perhaps it's an attempt to try to address the frail fiscal position of the federal government by targetting the poor rather than the 10,000 individuals who take in 30% of the nation's income?

Don Levit: "In 10 years, a government agency, I believe it is the CbO or GAO, estimates that Medicaid, Medicare, Social Security, and interest on the debt will consume the entire budget.That seems pretty scary, don't you think?

It sounds very scary and the statement appears to have the intent of frightening people into submission. Give up the funds you've put aside for a rainy day, you say. To provide for whom exactly?

Another $1.4 trillion govt commitment (government as lender) represents "A significant expansion of the government's traditional overnight lending to banks, including extending terms to as many as 90 days and allowing borrowing by other financial institutions. "

Something and someone has to give. It's certainly not the big financial institutions nor their investors.

I have a friend living in the comfortable certainty that comes with a million dollars a year in income. He is a major bank investor and is terribly grateful for the government's bailout, depositi guarantee and ongoing unquestioned support of his (and his ilk's) household finances.

A major difference between welfare for the rich and welfare for the poor is that there are far fewer strings attached to the former.

The unanswered question posed to Mr Levit:

BR: Perhaps it's an attempt to try to address the frail fiscal position of the federal government by targetting the poor rather than the 10,000 individuals who take in 30% of the nation's income?

Most of the arguments on this thread are based on an inadequate understanding not only of Social Security, but the nature of money. It's not worth arguing with Levit... I don't even know what his game is... beyond proving that his idee fixe is god's truth.

But even Brenda does not seem to realize that Social Security is the worker's own money.. set aside and protected for them by the government... but their own money just exactly as if it was put in the bank at interest. It is not a case of "us" supporting the old and unproductive. It is a case of "us" protecting their savings in a program that will protect our savings in turn.

The Trust Fund bonds ARE money. That's what money is. Sure it was lent to and spent by the government. That's what you do with "saved" money. Yes it needs to be paid back. But paying it back is not paying again for Social Security, it is paying the first time for whatever the borrowed money was used for. Arguing that the government has to tax or borrow more money to pay back the Trust Fund is exactly the same as going to the bank who lent you the money for your house and complaining that you will have to get a job to pay them back.

Brenda:I support your theory that our government's support is largely skewed toward the financial elites.This whole program of bailing out the banks and AIG is testament to that.Our leaders are more concerned about the stock market rising than our incomes falling.Median household incomes have stagnated or been reduced over the last 30 years.Social Security needs to exist, but, in my opinion, it is not sustainable in its current form.A retirement/savings plan as Roosevelt envisioned has to be properly run, so the assets are fully funded when they are cashed in to pay benefits.That is not the case with Social Security. Those assets were lent and spent, they are gone.When it is time to cash in to pay benefits from the trust fund, the same process occurs as paying for battleships - benefits are paid out of current revenue and debt.The federal retiree plan is run similarly, so at least we can say the government is "consistent." Trustees for such a plan would be put in jail.I can provide citations to support my statements for all those who are interested.Don Levit

quotes a "fact" that is designed to confuse. The huge amount that SS etc plus interest will make up of the federal budget... is mstly the interest owed because of borrowing that has nothing to do with SS, HI or even the rest of Medicare that was deliberately designed to increase the debt and weaken the program.

SS will be easily paid for, and there is no other way that workers can buy "retirement INSURANCE". shouting about unrelated expenses, or confusing people about the need and affordability of SS itself is stupid or dishonest or both.

Coberly:Can you provide a citation which attestS to the fact that redeeming Treasury securities is different from paying for any other expenditure - such as battleships.For if it is no different, then having the trust fund makes it no easier to pay beneficiaries than if the trust fund did not exist.Don Levit

Coberly:The interest that is in the trust fund is not paid in cash. It is interest "paid" in Treasury securities (debt).You must not think too highly of how Americans plan for their retirement.Don Levit

"Social Security needs to exist, but, in my opinion, it is not sustainable in its current form."Your opinion is weighed against the success of a program that has ben running successfully for the past 70 years. That success is in spite of the efforts of people with opinions like yours that have been grinding the same axe for all that time.

"That is not the case with Social Security. Those assets were lent and spent, they are gone."Your half right this time. Lent yes, but spent by the borrower and owed back to the Fund. What do you think Treasury does with the procedes of all those T-Bill sales?Did the purchasers of Treasury securities "spend" that money. Or did they invest their money in the USA? The borrower spends the money lent by the buyer of the bonds. The bond holder is due back interest and priciple. Don, these are the most elementary of investment concepts. Every pension plan inn the world lends and invests its assets. Those plans must make such investments of the original funds inorder to grow the priciple and meet future demands to pay benefits. You are trying too hard to confuse the issue.

"The federal retiree plan is run similarly, so at least we can say the government is "consistent." Trustees for such a plan would be put in jail."As noted abov e, this is the process used by every pension plan and required of them by law. What on Earth is your point? I ask because you are now obviously making intentionally false and misleading comments. Or you are an idiot who cannot be reasoned with.

Jack:I understand the process you mentioned.I am curious where in the law the trust fund had the right to lend money to the Treasury to pay for current expenses, and to keep the deficit lower.Even if the plan went according to the law, the design itself is flawed.When you pay beneficiaries years into the future just like you pay for battleships, I don't call that a pension plan.Similar words were used by the FASAB in regards to the federal retirees' pension plan.Do you really think that Roosevelt's vision of a self supporting plan, with no utilization of general revenues, is what we have now?I can provide links and excerpts for those who are interested.Don Levit

is just confused. he will cite and call for cites, but he doesn't understand the words.

in fact paying back SS is exactly the same as paying back the bonds that were used to buy battleships. that's how money works.

SS was designed to be pay as you go, but there was always a Trust Fund to tide the pay as you go system over inevitable mismatches between taxes in and benefits out... some very small monthly things, some larger related to recessions, and some larger still related to the baby boom. but the lending and borrowing really has nothing to do with SS proper... it is just using its Trust Fund to smooth its cash flow... and that was always in the bill.

you can keep arguing with Levit, he likes it. but don't expect him to understand anything, and i don't think there is much worry he will mislead anyone on this blog.

"I am curious where in the law the trust fund had the right to lend money to the Treasury to pay for current expenses, and to keep the deficit lower." Don Levit

Don,I can't do your homework for you. The Trust Fund isn't a bank. The SSA doesn't hold the incomeing FICA taxes directly. By law the Treasury Dept collects all incoming funds. Those funds are not comingled in accounting their sources. The various Funds are administered by Treasury and accounted for by "book entries," so to speak. Special Treasury bonds represent the value of the SS Trust Fund. What do you think that Treasury does with funds that come in? General taxes go directly to the general budget. FICA goes to the Trust Fund and are lent to the general budget. That's what Treasury is suppposed to do.

Don,Your question is so innane that your request for a "reputable excerpt" is a joke. Can an entity pay its bills when income falls short if it has no savings? Why does any financial organization keep reserves? The Trust Fund is the plan for current workers to fund SS sufficiently so that future3 workers will not be over burdened by the disproportionate numbers of beneficiaries. The government has bills to pay and financial obligations to honor. The Special Treasuries are just another of those financial obligations, no different from T-Bills held by the public.

Maybe you should devote more of your time and efforts to the concept of the rich paying taxes in an equal proportion to their wealth. The wealthiest citizens benefit the most from all government policies and regualtions and expenditures. Their debt to their government needs to be acknowledged. The Trust Fund assets made it easier to cover up the huge expense of the Bush tax cuts and the outrageoous expense of the wars in the middle east. General taxes have to now make up for those poor policy decisions.

Jack:Actually, I think my question is pretty important.With all the emphasis on building up the trust fund "reserves," so it doesn't become exhausted, many of the "solutions" center around tax increases or benefit cuts.In order to pay $1,000,000 to beneficiaries out of the trust fund, is it any easier, financially, to do so than paying for $1,000,000 of battleships.I have already provided excerpts and links saying it is no easier, other than the trust fund needs no appropriation while battleships do.I will be happy to provide them again, if others are interested.I am still waiting for your excerpt and link to my "inane" question.Don Levit

Don,As Bruce has implied on a more recent thread, but is too polite to be more direct, you are wasting our time and the site's band width. You ignore anything said to you regardless of its factual basis. You completely ignore links and references that are provided and simply ask that they be provided in spite of they're having been provided. Go play your silly games else where.

Jack:All I asked you was for a yes or no answer, and to include the links abd excerpts.Since I got no answer, I assume you agree with me, by default.I guess you, like Bruce, are not stronhg enough to admit the answer directly.Don Levit

Don Levit: "In order to pay $1,000,000 to beneficiaries out of the trust fund, is it any easier, financially, to do so than paying for $1,000,000 of battleships..."

Yes. This points out precisely the con associated with getting the public to contribute part of their earning for their old-age rainy day.

Money is not a store of wealth for very long at all. Certainly not 10, 20, 30, 40 years. Money retains its value only as long as the national and global financial system is kept in working order. And it hasn't been.

There is no shortage of money, EVER. I reiterate (for those unfamiliar with the fact) that money can be created electronically out of nothing. It is observable that there was no shortage of money for the state of permanent war that the US (in particular) has engaged in now since 1940. Nor for the many trillions of dollars of corporate bailouts (many of which were without any oversight). And the bailouts have continued in long succession since the 1970s.

The privatisation of pensions is merely the means to socialise risk, as Henry CK Liu warned in 2001. "The growth of pension and retirement funds can be viewed as a process in the socialization of capital formation. This process has brought about a corresponding growth in professional asset management based on competitive performance measured by short term market value, placing distorted emphasis on technical trends rather than fundamentals. The quest to socialize risk has led to indexation which works better in rising market to capture optimal systemic returns, but can also cause the categorical downgrade of entire families of debt instruments and their issuers without regard for individual strength. This can cause unnecessary and violent systemic damage, as it did in Asia in 1997. This socialization of risk associated with the socialization of capital formation means that a financial collapse will affect not merely the rich investors who may be able to afford the loss, but the entire population who can ill afford to lose their pension. The "too big to fail" notion then comes directly into play and government is forced to step in, putting an end to the myth of the free market. Moral hazard will be in full bloom as the nature of the beast. The Fed has been repeatedly held hostage to the "too big to fail" syndrome since 1930 and will again and again until its becomes the main agent to herald socialism to America, as Schumpeter predicted. Creative Destruction, of which Greenspan is so fond, will eventually destroy capitalism. "

Brenda:When you say there is no shortage of money, ever, I assume you mean that to be a moral hazard, if used ad infinitum.Thus, the replacement of socialism over capitalism?Only God can create something out of nothing.Maybe that's why we have "In God We Trust" printed on dollar bills.Don Levit

Don: "When you say there is no shortage of money, ever, I assume you mean that to be a moral hazard, if used ad infinitum."

No. I meant that our current economic context is such that the global supply of currency bears no relation to the measure of real wealth on the planet. There is a long history of how this came about. For example the new and unregulated form of 'high power money' (in 1994).

I refer to money created through what has been referred to as "arcane procedures and instruments"; like 'zero-reserve sweeps'. These novel banking processes resulted in an enormous expansion of the money base that was largely concealed from public scrutiny. More on this topic here:http://mises.org/journals/scholar/hatch.pdf

In pension funds the supply of capital is artificially increased. [There is evidence that the pension contributions in Australia resulted in far lower levels of household savings.] This phenomenon, of compulsory capital formation by the general public, provides incentives to artificially increase what is termed 'investment'. For example, new forms of ‘financial innovation’ where new ‘financial instruments’ are created to ‘repackage risk’ and on-sell to gullible or uninformed investors.

What is investment?? It's all very well to take our money, but what is done with it after we're fleeced?

Brenda:Thanks so much for providing the link to Hatch's very interesting paper.Some interesting excerpts:Page 1 "The use of reserve-sweep programs, which started in 1994, has allowed banks to reduce the effective reserve requirement on transaction deposits, freeing up high-powered money for other purposes. This activity has effectively lowered the reserve ratio of banks."Page 5 "Banks love savings deposits. Like Certificates of Deposit, they don't have to maintain a reserve like they do for demand deposits. Banking regulations require the banks to keep reserves, no more than ten percent, now.In 1994, banks discovered that they could "sweep" the "unused" parts of transaction deposits into a special type of account called a Money Market Deposit Account , or MMDA. The MMDA accounts are classified as savings deposits. They still have to follow rules concerning the number of transfers that can be made from savings deposits back into demand deposits. To do this, the banks have sophisticated software that analyzes every depositor's activity and figures out how much can be swept into an MMDA without getting into a situation where the bank has to transfer money back to the demand deposit more than the maximum allowed number of times. If the bank exceeds this amount, they have to reclassify the MMDA back to a demand deposit."Page 6 "The portion swept is really part of a demand deposit , but after sweeping, it is a savings deposit and can be reserved as such, which is to say not reserved at all.Because MMDA sweep accounts are included in total savings deposits, the amount of savings deposits is artificially inflated by the amount that demand deposits are understated."Page 12 "As short-term interest rates rise and/or price inflation increases, people are going to be less willing to carry large zero-interest checking account balances. The excess money will be diverted to other investments that have a non-zero return, and the percentage of "unused" money in all demand-deposit accounts will decline. The amount available for sweeping will drop, but more importantly, banks will see an increase in their effective reserve requirements."Don Levit